High-Priced Feed, Low Milk Prices Will Trim the U.S. Dairy Herd in 2012

September 18, 2011 07:07 AM

Exports flourishing amid drought and high feed prices domestically, USDA says.

Sharply higher feed prices for the balance of 2011 and into 2012 and lower forecast milk and dairy product prices next year will lead to a slight retrenchment in cow numbers, USDA’s Economic Research Service (ERS) said in its Sept. 16 Livestock, Dairy, and Poultry Outlook.

Production per cow and milk production, however, are expected to continue to rise both this year and next, ERS added.

Dryness and heat throughout the Corn Belt led to a downward revision in the corn yield forecast in for 2011-12 in the September Crop Production report. If the forecast is realized, the projected yield would be the lowest since 2005/06. Despite lower expected yields, production could be the third highest ever because of expanded acreage.

The corn price forecast was increased from last month to $6.50 to $7.50 per bushel for September and soybean meal price forecasts were raised in September to $360 to $390 per ton. The higher soybean meal prices reflect both lowered soybean plantings and expected yields compared with 2010-11.

Despite rising feed prices, milk production continues to advance, with forecast milk output rising 1.5% in 2011 to 195.7 billion pounds. Cow numbers continue to increase more than expected earlier and output per cow appears to have rebounded from the July and August heat. Cow numbers are projected at 9.2 million head this year, and output per cow was raised slightly from last month to 21,280 lb. for the year.

In 2012, the U.S. dairy herd is expected to decline slightly to 9.19 million head, with most of the contraction coming in the second half of the year.

With an additional milking day in 2012, milk per cow is forecast to climb by 1.5% to 21,605 thousand pounds. Although milk production and output per cow will be higher next year compared with 2011, the September forecast represents a downward revision from August estimates.

Fats basis milk equivalent imports were virtually unchanged from last month to 3.2 billion pounds both this year and in 2012. On a year-over-year basis, these forecasts continue a trend in declining imports that began in 2009. Skim-solids basis imports are projected at 5.3 billion pounds in 2011, falling to 5.1 billion pounds next year. In contrast to fats basis imports, these forecasts are an upward revision from August reflecting continued imports of caseins.

Fats basis exports are forecast to reach 9.2 billion pounds in 2011 and were revised up from August based on year-to-date exports of whole milk and cream, despite some fall-off in butter exports. In 2012, the expected weakening in butter exports will likely lead to reduced overall fats basis exports to 8.6 billion pounds. Skimsolids exports were bumped up from last month on the basis of nonfat dry milk (NDM), and dry whey exports and are projected to total 32.6 billion pounds for the year. In 2012, exports were reduced on expected declines in whey exports, although NDM exports will likely continue. The skim-solids export total is forecast at 32.3 billion pounds.

Fat basis domestic commercial use is expected to increase only slightly in 2011 to 188.2 billion pounds. Growth is expected to be stronger in 2012, with use forecast at 192 billion pounds. Skim-solids domestic commercial use is expected to rise over 2% to 167.5 billion pounds after contracting in 2010. Growth in skim solids domestic use will likely slow in 2012 to a forecast 170.6 billion pound total for the year.

Product price projections were changed only slightly from last month. Cheese prices, for both blocks and barrels, slid under $2 a pound for the week ending Sept. 3, 2011, for the first time since the week ending June 18, 2011, according the weekly Dairy Products Prices report. Cheese stocks continued to build in July.

Consequently, the cheese price forecast was lowered in September to $1.825 to $1.845 a pound for 2011, but was unchanged at $1.670 to $1.770 a pound for 2012. Butter prices are projected to be $1.955 to $1.995 this year and are forecast to decline to $1.615 to $1.745 a pound next year as butter stocks will likely build by year’s end. The nonfat dry milk (NDM) price is expected to be $1.505 to $1.525 a pound in 2011 and $1.375 to $1.445 next year.

NDM exports continue apace, supporting the high price this year. Lower expected exports in 2012 prompt the price weakening in 2012. Exports are also contributing to stronger prices for whey, which is forecast at 50.5 to 52.5 cents a pound this year. Lower exports will lead to softening prices next year, averaging 41.5 to 44.5 cents a pound.

Class III milk prices for 2011 were lowered from August to $18.25 to $18.45 per cwt. as higher whey prices partially offset lower cheese prices. Next year, Class III prices are forecast at $16.10 to $17.10 per cwt. Class IV prices were unchanged this month from last. The Class IV price is projected to average $19.05 to $19.35 per cwt. Next year, the Class IV price is forecast at $16.50 to $17.60.

The All-Milk price is forecast at $20.15 to $20.35 per cwt., a slight drop from the August forecast. Next year, the All-Milk price is expected to be $17.80 to $18.80 per cwt., unchanged from the August forecast.

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